AFL-CIO Opposes Wal-Mart Plan to Set Up Bank

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The New York Sun

WASHINGTON – Wal-Mart’s effort to set up a new bank to handle the more than 1 billion payments made at the company’s retail stores every year is under fire from the AFL-CIO, which is urging federal regulators to block the plan because of what the labor federation called the chain’s “long history of unethical, and often illegal, practices.”


The unusual level of interest in Wal-Mart’s banking proposal led federal regulators yesterday to extend a public comment period on the application by 30 days, until September 23, a spokesman for the Federal Deposit Insurance Corporation, David Barr, said.


In a letter to the agency, the AFL-CIO noted that Wal-Mart is facing a series of legal problems, including a massive gender discrimination lawsuit and an active federal grand jury investigation into possible misappropriation of company funds.


“These indications of systematic corporate abuses cast grave doubt on Wal-Mart’s ability to abide by the rules applicable to banking operations,” the labor federation’s president, John Sweeney, wrote.


A wide array of labor, consumer, and banking interests have already lined up against Wal-Mart’s plan. Many said they suspect the retail giant’s proposed bank, which would be based in Utah, is the first step toward Wal-Mart-owned bank branches in stores across America.


“Eventually, Wal-Mart would do to the local banks what they’ve done to the local hardware stores,” a lobbyist with the Independent Community Bankers of America, Stephen Verdire, warned.


“We’re strongly opposed to Wal-Mart branching into banking through a Utah back door,” said a spokesman for a liberal consumer organization, Edmund Mierzwinski of the U.S. Public Interest Research Group.


A Wal-Mart spokesman said yesterday that worries about the company making a foray into the retail banking business are unfounded. “The charter of this bank and the focus of this bank are very narrow,” the spokesman, Marty Heires, said. “What we’re seeking to do here is save money on transaction fees for debit, credit, and electronic checking.”


The new Wal-Mart Bank would allow the chain to process payments without having to give a cut to an outside vendor. “We can take the money we save by doing that and turn it back to our customers in the form of lower prices,” Mr. Heires said. “There was some money sitting on the table, and this is a chance to grab it.”


Opponents of the company’s plan say the denials are not credible in light of three separate attempts the retail giant has previously made to get into the banking business.


In 1999, Wal-Mart attempted to acquire an Oklahoma savings and loan but was denied permission by regulators. Two years later, the discount retailer announced a partnership with Toronto-based TD Bank to offer certain bank services at Wal-Mart stores. Again, regulators nixed the idea, objecting in particular to a proposal that Wal-Mart checkout clerks also act, in essence, as bank tellers.


In 2002, Wal-Mart tried to buy a California-based loan company. In that instance, the state Legislature passed a measure blocking the acquisition.


The regulatory problems have not dissuaded Wal-Mart from offering financial services in its stores. The company already offers check-cashing and money transfers directly, as well as a full range of banking services through in-store branches of independent banks.


According to the application Wal-Mart filed with federal banking regulators in July,the bank would only handle the chain’s electronic payments and issue short-term certificates of deposit to individual investors and nonprofit organizations. Industry experts said the latter proposal is a way for the bank to fulfill its community service obligations under federal law.


Mr. Barr, the FDIC spokesman, said if the bank plan were approved, it would be difficult for Wal-Mart to abruptly move into retail banking. “If they deviate from the business plan and the special purpose of their charter, they have to get approval from us before they can do that,” he said. “It’s not like they can get this charter and two years later do a complete 180.”


Mr. Barr said the agency’s analysis of the application would be based on seven established criteria, two of which – “general character and fitness of management” and “convenience and needs of the community” – seem to take the company’s reputation into account. A review of the criminal history and finances of those behind the application is already under way, the spokesman said. Action on the proposal will not be delayed by the extension of the public comment period, he added.


Wal-Mart’s planned bank would also need the approval of banking regulators in Utah. That process would likely involve a public hearing of some sort, a state official said.


One of Wal-Mart’s competitors, Target Stores, started a Utah-based industrial bank last year. Target Bank issues credit cards to businesses. Target also bought a South Dakota bank that issues consumer credit cards. Wal-Mart, which issues its credit cards through an affiliate of General Electric, has no plans to use the new bank for that purpose, Mr. Heires said.


An upscale department store chain, Nordstrom, also has an “industrial bank” to handle its credit card accounts. Many companies favor that arrangement because it does not bring the entire conglomerate under regular federal supervision.


Mr. Sweeney’s letter, which was released yesterday, warns that the proposed Wal-Mart Bank could suffer from “a serious conflict of interest” if the bank made loans to the chain’s suppliers. The labor leader did not mention that similar arrangements already exist in both the business and labor sectors. A New York-based bank that regularly loans money to unions is also owned by a hotel and laundry workers union, Unite-Here.


Not all consumer advocates think the idea of a Wal-Mart Bank is inherently suspect.


“It could turn out to be a good thing for consumers … especially the unbanked or those who are suspicious of banks,” said a consumer watchdog, Linda Sherry, according to the MSN Money Web site.


The New York Sun

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